BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF

[ADJUDICATION ORDER NO. IVD-ID9/RDB/AO/DRK-AKS/EAD3-494 -496 /38 - 40 /2014]

______

UNDER SECTION 15 I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5(1) OF SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

In respect of:

BMD Exports Pvt. Ltd. Shri Jitendrabhai Ramanbhai Patel Shri Madhavlal Bechardas Patel 22-A,Suraksha Society Visnagar, Mehsana - 384315

FACTS IN BRIEF

1. Securities and Exchange Board of India (hereinafter referred to as ‘ SEBI ’) conducted an investigation of the Initial Public Offer (hereinafter referred to as ‘IPO ’) of RDB Rasayans Ltd. (herein after referred to as ‘RDB ’) and its subsequent trading on and around the listing day as the scrip of RDB witnessed wide fluctuations in the price on Bombay Stock Exchange Ltd. (hereinafter referred to as ‘ BSE ’). RDB came out with an IPO of 45,00,000 equity shares of ` 10 per share at an issue price of ` 79 each and the issue was opened on 21.09.2011 and closed on 23.09.2011. The post issue equity share capital of the company is 1,77,14,800 shares.

APPOINTMENT OF ADJUDICATING OFFICER

2. I was appointed as the Adjudicating Officer under Section 15 I of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act ’), read with Rule 3 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘ Adjudication Rules’ ) to

Page 1 of 11 inquire into and adjudge under Sections 15 HA and 15 HB of the SEBI Act the violations of Sections 12A (a), (b) and (c) of the SEBI Act read with Regulations 3 (a), (b), (c), (d), 4 (1), 4 (2) (a), (d) and (e) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as ‘ PFUTP Regulations ’) alleged to have been committed by BMD Exports Pvt. Ltd. (hereinafter referred to as ‘BMD / noticee 1 ’), Shri Jitendrabhai Ramanbhai Patel (hereinafter referred to as ‘ JRP / noticee 2 ’) and Shri Madhavlal Bechardas Patel (hereinafter referred to as ‘ MBP / noticee 3 ’), Directors of noticee 1 and the same was communicated vide proceedings of the Whole Time Member appointing Adjudicating Officer dated 11.05.2013.

SHOW CAUSE NOTICE, HEARING AND REPLY

3. Show Cause Notices No. A&E/EAD3/DRK-AKS/18578/2013, A&E/EAD3/DRK-AKS/18580/2013 and A&E/EAD3/DRK-AKS/18583/2013 dated 29.07.2013 (herein after referred to as ‘SCN’ ) were served on the noticees in terms of the provisions of Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 requiring the noticees to show cause as to why an inquiry should not be held against the noticees and why penalty, if any, should not be imposed on the noticees under Sections 15 HA and 15 HB of the SEBI Act. In the said SCNs, it was alleged that part of the IPO proceeds was routed in a circuitous manner by RDB to noticee 1 in order to enable it to make payments to its stock broker on time i.e. as per T+2 settlement mechanism.

4. Vide personal hearing notices dated 23.08.2013, the noticees were granted an opportunity of hearing on 20.09.2013 at 11:00 am at SEBI Western Regional Office II, . The said notices were served on the noticees through Speed Post Acknowledgement Due and proof of service is on record. Further the noticees were advised to submit their reply to the SCN on or before 13.09.2013. However the noticees failed to attend the scheduled hearing without providing any reasons. 5. Noticees vide their letter dated 14.09.2013 submitted that the reply submitted by them to WTM proceedings should be taken on record and treated as reply for the current adjudication proceedings also. Further the noticees requested for personal hearing in the matter. Noticees vide their reply dated 27.04.2012 submitted the following major reply towards WTM proceedings:

Page 2 of 11 • All trades were done by them in the normal course of my trading business. The said trades are noticees own transactions and not for or at the behest of any 3 rd party or as a front entity as incorrectly assumed or otherwise.

• Noticees general investment / business strategy adopted and implemented includes trading as well as short-term trading, day-trading, investment & arbitrage activities in the capital market. Noticees have huge business volumes of more than ` 100 crore per annum.

• Noticees have also traded in the shares of more than 20 companies.

• Noticees have regularly borrowed funds interalia from Sardhav Investment and Finance Pvt. Ltd. (hereinafter referred to as ' Sardhav ') and repaid the same, pursuant to an agreement dated 28/01/2011 between Sardhav and noticees. In fact there are almost regular financial transactions between noticees and Sardhav. Noticees have from time to time borrowed more than ` 6.5 crore from Sardhav and have also made repayments. Such loans are accounted for on a running account basis and the re-payments are made by them depending upon its excess liquidity, recall of funds by Sardhav etc. Noticees state that they are liable to pay interest on such loans at the agreed rate for the period for which the money is utilized by them.

• For trading carried out by noticees on 7.10.2011, the pay-in date on BSE & NSE was 11.10.2011. Noticees did not have the required funds and therefore borrowed ` 1.45 crore from Sardhav on 10.10.2011 which was utilized to pay to ANS.

• It is also pertinent to note that noticees trading in the shares of RDB on 7.10.2011 was only 75% of their total turnover of 7.10.2011.

• Noticees have no connection or contact with RDB, or its Promoters, or its Directors.

• Although the IPO of RDB was for only 45 lacs shares, the total turnover in the shares of RDB in NSE & BSE on 7.10.2011 was 3.50 crores shares. Therefore the volume of trading turnover was huge and at all time there was substantial depth and liquidity in the market. Huge quantities of orders were being placed throughout the day.

6. Noticees vide their aforesaid letter dated 14.09.2013 had also requested for inspection of relevant documents. Vide our letter dated 23.09.2013, noticees were informed that their request for inspection was forwarded to the concerned department and the noticees were advised to address further communication with respect to inspection to the concerned department.

7. It was noted from records that noticees had not carried out inspection in the matter for almost 5 months. Therefore, a final opportunity of hearing was granted to the noticees vide common hearing notice dated 10.02.2014 to attend the hearing on 24.02.2014 at 11:00 am at SEBI Bhavan, . In the said notice it was mentioned that noticees have failed to carry out the inspection. Further it was also mentioned that if the noticees fail to attend the hearing the matter shall be proceeded based on the material made available

Page 3 of 11 on record. Proof of service is available on record. The noticees again failed to attend the scheduled hearing without providing any reasons.

8. From the records it is noted that the noticees have not attended any of the personal hearings granted to them inspite of service of the notices as stated above. In the light of this fact, I am convinced that the Principles of Natural Justice have been complied with and I am compelled to pass an order against the noticees based on the material made available on record. It is also noted that inspite of providing opportunity, the noticees have failed to carry out the inspection in the matter as requested by them and have also failed to appear for the personal hearings granted to them in the current adjudication proceedings.

CONSIDERATION OF EVIDENCE AND FINDINGS

9. I have taken into consideration the facts and circumstances of the case and the material made available on record.

10. It is observed from the IR that the scrip of RDB got listed on BSE on October 07, 2011. The listing day witnessed volumes to the tune of 3,50,09,187 shares which got traded through 2,04,524 trades. Thus, the number of shares traded on the first day of listing represents 1.98 times of the paid up capital of the company. Out of 3.50 Crore shares traded on the listing day only, 40,17,005 shares were the net delivered quantity. Thus, the delivery to trade percentage was just 11.48%. Further the deliverable quantity of 40,17,005 shares out of the 45 Lakh shares issued through IPO represents 89.27%. Thus, a large portion of the allottees of RDB IPO had sold their shares on the day of listing.

11. It is further observed from the IR that the scrip opened at a price of ` 85 at 09:15:04 am and was in the range of ` 72.90 to ` 93.15 till 13:18:07 and thereafter started falling sharply from 13:18:08 and reached its intraday low of ` 19.80 at 15:29:46 and closed at ` 26.50. Pre 13:18:07 total volume was 2,01,40,500 shares (57.53%) and post 13:18:08 total volume was 1,48,68,687 shares (42.47%).

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12. BMD's trading details in the scrip on the listing day are as follows: Client Name Gr Buy % of Gr Sell % of Gr Buy Gr Sell Net Loss ( ```) Buy Vol Mkt Vol Mkt Value ( ```) Value ( ```) Before Buys Sell Price Fall BMD Exports Pvt 3,30,000 0.943 3,30,000 0.943 2,14,96,692 89,25,281 -1,25,71,411 2,30,000 Ltd.

13. As seen from the table above, BMD had incurred a huge loss on account of its trading on the listing day. Further, as seen from the last column of the table, except 1 lakh shares noticee 1 had bought its shares before 01:15 pm i.e. before the price fall period.

14. It is observed from the IR and the bank statements that on 07.10.2011 RDB had transferred ` 24.1 Crore ( ` 19.5 Crore and ` 4.6 Crore) in two tranches from its Oriental Bank of Commerce account to the account of RDB Realty and Infrastructure Ltd. (hereinafter referred to as ‘ RDBRIL ’) maintained with Oriental Bank of Commerce. On the same day RDBRIL transferred ` 9.15 Crore from its Oriental Bank of Commerce account to the account of Namokar Duplicating Pvt. Ltd. (hereinafter referred to as ‘ Namokar ’) held with UCO Bank. On same day, Namokar transferred ` 8.4 Crore to the account of Mercury Fund Management Company Pvt. Ltd. with Bank of Maharashtra. On 08.10.2011, Mercury Fund Management Company Pvt. Ltd. had transferred ` 5.5 Crore to the account of Deesha Tie Up Pvt. Ltd. (hereinafter referred to as ‘Deesha ’) held with Development Credit Bank. On 10.10.2011, Deesha transferred ` 4 Crore to the account of Dharamnath Shares and Services Pvt. Ltd. (hereinafter referred to as ‘ Dharamnath ’) held with Indusind Bank. Dharamnath later on transferred ` 4.5 Crore to the account of Subodhsagar Shares and Service Pvt. Ltd. (hereinafter referred to as ‘ Subodhsagar ’) held with Axis Bank. Subodhsagar subsequently transferred ` 4 Crore to the account of Sardhav Investment and Finance Pvt. Ltd. (hereinafter referred to as ‘ Sardhav ’) held with Axis Bank. Sardhav transferred the money received from Subodhsagar to four major loss making trading clients who had dealt in RDB shares and one of the loss making trading clients was BMD and ` 1.45 Crore was credited to BMD’s bank account held with Royal Bank of Scotland (account no. 1645730) on 10.10.2011.

15. As seen from the above, a part of IPO proceeds flowed in the following

Page 5 of 11 pattern from RDB to four loss making trading clients:-

RDB

RDB Reality and Infrastructure Limited

Namokar Duplicating Pvt. Limited

Mercury Fund Management Company Pvt. Limited

Deesha Tie Up Pvt. Limited

Dharamnath Shares and Services Pvt. Limited

Subodhsagar Shares and Service Limited

Sardhav Investment and Finance Pvt. Limited

Four loss making trading clients including BMD

16. It is observed from the IR that the entity Dharamnath and Deesha are related as the Director of Dharamnath, Mr. Maheshbhai Patel and the Director of Deesha, Mr. Mohanlal Patel have common address as ''233, Mukhivas, New Civil, Janakpura, Ahmedabad''. Further, Mr. Mohanlal Patel is also the Director of Subodhsagar. Also, as per the website, Subodhsagar and Sardhav have common email id as ''[email protected]''. Further, Namokar is a significant shareholder of RDB Insurance Broking Services Pvt Ltd, which is a group company of RDB. Above mentioned connection / linkages shows that the afore mentioned entities are inter-connected.

17. Further, it is observed from the IR that all the agreements of four major loss making trading clients with Sardhav carries franking stamp of ` 100 from the Vijay Co-operative Bank Limited, Nehru Bridge, Ashram road, Ahmadabad. Further it is mentioned in the agreement that the parties to the agreements are brought together through common friends as stated in the agreement.

18. Noticees have not submitted any documentary proof to substantiate their business strategy or their huge business volumes of more than ` 100 crores

Page 6 of 11 per annum or trade details of their trading in other scrips during the relevant period. There is nothing on record viz. income tax returns or KYC or their balance sheet to show that noticees had financial strength to carry out trades in such volume in the scrip of RDB.

19. The ledger statements provided by the noticees having loan transactions with Sardhav does not bear any seal or certification to prove its authenticity. The loan agreement entered between noticees and Sardhav are not duly witnessed by any third party. No evidence has been produced by noticees to show any type of request / communication made by noticees to Sardhav for giving the amount of loan to meet the financial obligation / requirement for trading in the scrip of RDB on listing day. Noticees have not submitted any document to prove that the repayment of loan to Sardhav was out of noticees own resources. No evidence has been produced by noticee 2 for payment of interest as per the terms of agreement with Sardhav .

20. In view of the lack of above supporting documents / evidences noticees submissions cannot be accepted.

21. The IR observes that prior to the IPO, RDB had a paid up share capital of ` 13.21 Crore and reserves of ` 4.66 Crore as per annual audited balance sheet as on March 31, 2011. The profits of RDB during the past 5 years were in the range of ` 78 Lakh and ` 1.8 Crore. The amount of loan proposed to be given to RDBRIL as referred to in the explanatory statement to the EGM notice dated September 12, 2011 was three times the net worth of RDB (` 17.8 Crore). Thus it can be said that loan to an extent of ` 50 Crore was in fact a reference to the IPO proceeds which were to be received by RDB

22. In view of the above it can be concluded that IPO money was routed by RDB through a web of inter-connected entities to make the transaction look complex and hide the actual source of the money in order to enable BMD to make payments to its stock broker on time i.e. as per T+2 settlement mechanism.

23. In view of the above facts and circumstances of the case and the material made available on record, it can be concluded that BMD has violated Sections 12A (a), (b) and (c) of the SEBI Act read with Regulations 3 (a), (b), (c), (d), 4 (1), 4 (2) (a), (d) and (e) of PFUTP Regulations.

24. I would like to quote, the observation made by Hon'ble Securities Appellate Tribunal vide its order dated December 22, 2011 in Alka Securities Ltd. V.

Page 7 of 11 SEBI wherein it was held that " Section 27 of the Act, inter alia, provides that when an offence under the Act has been committed by a company, every person who at the time the offence was committed was in-charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against. This provision also applies to the violation of the regulations framed under the A ct."

25. It may be added that noticee no. 1/ BMD being an artificial / legal entity has to act through natural person(s). Shri Jitendrabhai Ramanbhai Patel and Shri Madhavlal Bechardas Patel being the Directors of BMD are responsible for the actions of BMD and hence have also violated Sections 12A (a), (b) and (c) of the SEBI Act read with Regulations 3 (a), (b), (c), (d), 4 (1), 4 (2) (a), (d) and (e) of PFUTP Regulations. The text of the said provisions are reproduced below: SEBI Act

Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.

12A. No person shall directly or indirectly—

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;

PFUTP Regulations, 2003 3. Prohibition of certain dealings in securities No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any

Page 8 of 11 manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:— (a) indulging in an act which creates false or misleading appearance of trading in the securities market; ….. (d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person any money or money’s worth for inducing such person for dealing in any security with the object of inflating, depressing, maintaining or causing fluctuation in the price of such security; (e) any act or omission amounting to manipulation of the price of a security;

26. The said violations attract penalty under Section 15HA of the SEBI Act but not under Section 15 HB of the SEBI Act. The text of Section 15HA of the SEBI Act is reproduced below: “15HA. Penalty for fraudulent and unfair trade practices- If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher.”

27. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the Rules require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors namely; a. the amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of the default b. the amount of loss caused to an investor or group of investors as a result of the default c. the repetitive nature of the default

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28. With regard to the above factors to be considered while determining the quantum of penalty, it is observed from IR that BMD had received ` 1.45 Crore from RDB.

29. In view of the abovementioned conclusion and after considering the factors under Section 15J of the SEBI Act, I hereby impose a penalty of ` 2,00,00,000 (Rupees Two Crore only) jointly and severally on BMD Exports Pvt. Ltd. and its Directors, Shri Jitendrabhai Ramanbhai Patel and Shri Madhavlal Bechardas Patel under Section 15HA of the Securities and Exchange Board of India Act, 1992 which is appropriate in the facts and circumstances of the case.

ORDER

30. In exercise of the powers conferred under Section 15 I of the Securities and Exchange Board of India Act, 1992, and Rule 5 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 , I hereby impose a penalty of ` 2,00,00,000 (Rupees Two Crore only) jointly and severally on BMD Exports Pvt. Ltd. and its Directors, Shri Jitendrabhai Ramanbhai Patel and Shri Madhavlal Bechardas Patel in terms of the provisions of Section 15HA of the Securities and Exchange Board of India Act 1992 for the violation of Sections 12A (a), (b) and (c) of the Securities and Exchange Board of India Act read with Regulations 3 (a), (b), (c), (d), 4 (1), 4 (2) (a), (d) and (e) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. In the facts and circumstances of the case, I am of the view that the said penalty is commensurate with the violations committed by the noticees.

31. The penalty shall be paid by way of Demand Draft drawn in favour of “SEBI – Penalties Remittable to Government of India” payable at Mumbai within 45 days of receipt of this order. The said demand draft shall be forwarded to General Manager- ID-9, Securities and Exchange Board of India, Plot No. C4- A, ‘G’ Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.

32. In terms of the provisions of Rule 6 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995, copies of this order are being sent to BMD Exports Pvt.

Page 10 of 11 Ltd. and its Directors, Shri Jitendrabhai Ramanbhai Patel and Shri Madhavlal Bechardas Patel having office at 22-A, Suraksha Society, Visnagar, Mehsana, Gujarat - 384315 and also to the Securities and Exchange Board of India, Mumbai.

Place: Mumbai D. RAVI KUMAR CHIEF GENERAL MANAGER & Date: March 24, 2014 ADJUDICATING OFFICER

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